A Dynamic Model of Effective Factors on Open Innovation in Manufacturing Small and Medium Sized Companies

Introduction

Innovation is an important topic in the study of economics (Bhushan, 2012). It is one of the essential drivers of any sector in the economy (Bajracharya, 2014). There are two kinds of innovation: Closed Innovation (CI) and Open Innovation (OI) (Chesbrough, 2003a, pp. 21-63). This kind of process in which large companies internally explored, developed, and commercialized technologies has been called CI Model (Ibarra et al., 2015; Chesbrough, 2003b). OI introduced as a concept 14 years ago by Henry Chesbrough (Chesbrough, 2017; Chesbrough, 2003a). He defines it as paradigm that assumes that firms can and should use external ideas as well as internal ideas (Hossain, 2013) to accelerate internal innovation and to expand the markets for external use of innovation (Chesbrough et al., 2006, p. 2). Even the largest firms need to open their innovation activities (Hippel, 1988) in order to be update with technological developments (Chen et al., 2011). Studies shows that OI can increase the product success rate up to 50% and research productivity and internal development up to 60% (Enkel et al., 2009). Although OI can be applied either in the high-tech or low-tech industries (Chesbrough, 2003b), OI has the lowest rate of adoption in low-tech industries (Chesbrough & Brunswicker, 2013, p. 6). The first step towards OI is the outsourcing of R&D to reduce costs and risks and to use complementary assets to fuel growth (Gassmann et al., 2010). Researches indicate that internal R&D alone cannot fully implement OI, so other parts of the organization such as human resources management must get on board for it to work effectively (Chesbrough & Brunswicker, 2013, p. 37). Small and medium-sized enterprises (SMEs), as the majority of firms in the service and manufacturing sectors, make important contributions to create of innovations (Pervan et al., 2015) and play significant roles in the growth, development, and industrialisation of many economies (Shafiei Nikabadi & Zamani, 2016). However, they face significant challenges in their attempts to innovate due to their small size and limited resources (Robinson & Stubberud, 2011) and only few number of studies have emerged about investigating OI practices in SMEs (Lee et al., 2010; Van de Vrande et al. 2009; Laursen & Salter, 2006). Generally, SMEs have received scant attention in the OI literature (Spithoven et al., 2013). Although near 30% on Iran’s economic benefit are created by SMEs and about 75% of manufacturing firms are SMEs (Shafiei Nikabadi & Zamanlo, 2012), there are only few domestic studies about OI implementation in manufacturing SMEs (MSEMs). An examination of the factors that drive OI in SMEs is expected to help SMEs desirous of adopting OI (Kaur et al., 2014). Comprehensive exploring about effective factors OI in MSMEs in terms of different aspects, examining causal relations among studied factors to determine a dynamic model are the contribution of this paper. Thus, in order to help Iranian MSMEs due to successful OI implementation, the paper aims to answer this question “What is the dynamic model of effective factors on OI in MSMEs?” by using System Dynamics approach based on the most vital effective factors on OI and their causal relations in MSMEs in Iran.